synchronizing order and inventory management for competitive differentiation and growth

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Synchronizing Order and Inventory

Management for Competitive

Differentiation and Growth

• Cognizant 20-20 Insights

Introduction

Order and inventory management have always

been the center of supply chain management. To

remain globally competitive, organizations must

effectively manage the inventory of a network

of distribution systems, in harmony with order

management. The business process lines in the

supply chain are optimized by various software

packages available in today’s market.

This paper presents a model organization’s order

and inventory management system. The manu-

facturer operates its own plants, while sourcing

from vendors for specialized products. It operates

its own logistics and transportation system for

distribution and retails its product lines through

its own captive stores.

Inventory Management

Inventory management is at the core of the

entire supply chain. It begins with the demand

forecast, based on historical and market trends

data. Optimal inventory management requires a

ne balance between the two prime competingfactors of customer satisfaction and cost. Figure 1

presents the inventory management process ow,

from forecast through fulllment.

Demand Management

When a store receives an order, it reserves

inventory for that order, based on inventory

availability at the store. An inventory shortage

allows store associates to source from a regional

distribution center (RDC), the plant, the store or

another vendor.

Supply Management

Supply is the future inventory, as well as the

physical inventory available in the store. The

supply in a store is managed in the following

ways:

Replenishment orders•Inventory adjustments•Blind receiving•Returned orders•

Replenishment orders: The inventory at the store

can be replenished through a transfer order or

purchase order. This could be a manual process or

a system-generated one. These orders are placed

by forecasting the demand for a product. They are

designed to even out the uctuations in supply

and demand, while meeting customer needs.

Inventory adjustments: Store associates can

adjust inventory in the system by providing the

reason for the adjustment. These adjustments

provide the ability to handle situations such

as damaged inventory, synchronizing system

inventory with the store’s physically available

inventory and manual ship errors.

cognizant 20-20 insights | july 2011



Blind receiving: When goods are received that are

not tagged to a specic scheduled store order, the

inventory of those goods is adjusted in the store.

Return orders: Customers can return the products

back to a sales service center. These returns are

obtained either with or without authorization

(sales receipts), and product inventory is adjusted

in the sales service center.

Counts

Customers may request orders in quantities that

differ from the packaged unit of measure. Whenpackages are opened, this introduces a human

factor into the inventory count, which requires

manual count systems to execute in a planned

or ad hoc manner to maintain accuracy in the

system.

There are two types of counts that are main-

tained:

Physical count:• This planned count process

is performed annually to count all items in

inventory to verify the accuracy of system

inventory records. Once the physical count

process has begun at a store, the system needs

to prevent any inventory change transactions

at that store. The manually generated counts

are compared with the system inventory

records. If the variance level is acceptable,

then the system inventory will be adjusted to

the count that has been entered.

Cycle count:• This is an ad hoc count process

that can be requested by the inventory control

department, or it can be initiated by the

system. During this process, users perform

counts manually for an item. In the event

that a discrepancy exists between the system

inventory level and the amount returned in

the count, the store manager may decide to

correct the count in the system based on the

inventory audits. This process is executed on a

quarterly basis.

Inventory AuditInventory audits provide a means to view

inventory modications and actions that have

been performed on a product and to track the

changes at closer levels.

Manual Allocation and De-allocation

of Inventory

If there is a shortage at the store, it can be procured

from an RDC or a vendor through sourcing

options during the order capture process. When

a viable sourcing option cannot be found, store

associates may want to promise the order based

on inventory already allocated to another order.This process is called “manual allocation and de-

allocation of inventory.”

Another situation is if an inventory shortage is

detected in the store not during order capture but

during inventory operations, such as receiving,

cognizant 20-20 insights 2

Inventory Management Process Flow

Forecastgenerationbased onhistorical,seasonal

andmarketdata.

ProductionPlanning

Stores

ManufacturingPlant

RegionalDistribution

Centers

Vendor

InventoryAdjustments

Stores

InventoryManagement1. Counts

- Cycle counts - Physical counts2. Inventory Audits3. Monitors

Demandcreated bysales orders

Supply out

Supply in –returnorders

Sales order

Pick-up

Ship out

Pick now

Demand

Customer

Figure 1



cognizant 20-20 insights 3

cycle count or backroom pick (when the customer

comes for pickup). Since this kind of inventory

shortage may potentially affect multiple orders,

the store associate has to decide which of the

orders takes the hit. This scenario is also handled

by the same process of manual allocation and de-

allocation of inventory.

Inventory MonitorsSystem-driven background jobs can be run to

monitor inventory and raise alerts to relevant

users or user groups.

If the available inventory becomes negative,•the system will send an alert to all relevant

users or user groups.

If the items are not received by a specied•number of days past the purchase order

creation date, the system will send an alert to

all the relevant users or user groups.

If the items are not received within a specied• number of the days before the sales order

completion date, then the system will send an

alert to all the relevant users or user groups.

Order Management System

Demand is generated by orders. There are various

types of orders and fulllment processes:

Customer order capture: Order capture is a sales

order placed by a customer. There are four order

capture scenarios:

Grab-and-go•Pick later•Ship-out•A combination of these•

The process could also potentially trigger the

placing of related purchase and transfer orders,

based on the availability of the items ordered.

The store associate initiates the order entry1.

process by specifying items to be placed on an

order.

For items not available immediately, the store2.

associate chooses various options to source

the product.

Once sourcing options are chosen, the store3.

associate must dene the fulllment options

and associated details. The available options

are “grab-and-go,” “pick later” or “ship-out.”

Pricing is determined for all the items on the4.

order. Taxes and charges like energy surchargeand freight charges are applied.

A summary of the total order value is5.

displayed.

For orders for which a payment/advance6.

must be collected, the customer has multiple

payment options: On-account, cash, check or

credit card.

Grab-and-go order: This details the ow of an

order when the customer walks into the store,

picks up the order right away and pays for the

Grab-and-Go Overview

Customerrequestsan order

Pricing Payments

Add itemsCustomer

informationcapture

Salesreceipt

is printed

Sourceitems

Fulfillmentmethod =Pick Now

Markorder asshipped

Ordercomplete

M u l

i t - S y s t e m P r o c e s s

Figure 2



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© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is

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Figure 3

Order Management Process Flow

Bill To

Billing

OrderDetails

DriverDetails

RouteDetails

ShipmentStatus

ShipmentDetails

OrderStatus

Carrier Mode

Damage/Claims

Accessorials

Product

Have invoice adjustment details inHave bill-to details in

Have customer details in

Have shipper details in

Have consignee details in

Have LOB details in

Have third-partydetails in

Have payment details in

Store invoice details in

Have product details in

Have shipment details in

H a v e s h i p m e n t s t a t u s d e t a i l s i n

H a v e o r d e r s t a t u s

d e t a i l s i n

H a v e d r i v e r

d e t a i l s i n

Have carrierdetails in

H a v e

s h i p

m e n t

r o u t e

d e t a i l s

i n

Have accessorial details in

Have shipper LOC details in

Have shipmentdamage/claims

details in

CorrectionMemo

PaymentCustomer

Shipper

Consignee

Line ofBusiness

(LOB)

Third Party

order. The order fulllment for a grab-and-go

scenario is triggered during conrmation of the

order, and the sales receipt is printed at the end

of the order creation process (see Figure 2).

Transfer/purchase order: When a customer

places an order with items for which there is not

enough inventory available, the system can be

made to automatically create a transfer order or

purchase order by pre-dening sourcing rules. In

the case of a transfer order, once it is conrmedby the receiving store, the shipping store fullls

it and ships the items to the requested store.

Then, the requested store receives and fullls the

customer’s order.

In the case of a purchase order, a request with the

list of items is sent to the procurement system.

The vendor ships the items to the receiving store,

at which point the customer’s order is fullled. A

sample order ow diagram is depicted in Figure 3.

Conclusion

If order and inventory management activities are

synchronized, organizations can achieve goals

such as on-time delivery, optimal logistics options

and high-quality customer service. This can helporganizations in their pursuit of competitive dif-

ferentiation and growth in the marketplace.

synchronizing order and inventory management for competitive differentiation and growth

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